The great minds of the IMF, the ECB and the European Commission combined to draw up plans… well okay a plan, a one fits all plan, for the solution of the European Crisis, erroneously perceived as a sovereign debt crisis. Let us see how this plan worked out, brilliantly solving the said crisis in a matter of a couple of years.
Starting with the Iberian Peninsula. Portugal. The plan worked out in every detail, with precise forecasts drawn up for Greece (to which we shall come later) was applied hook, line and sinker to Portugal, without even taking any differences into account.
The Portuguese, unlike the unruly Greeks, carried the plan out to a tee, doing everything precisely as the troika had imposed. Stringent austerity and selling off assets. Nevertheless, the meticulously planned targets were missed and forecasts bore out no relation to reality.
Now, given that the Portuguese did absolutely everything demanded of them in precisely the way the troika had designed, whose fault was that? Now before you go saying silly things like “it was the troika who got it all wrong!”, see what happened. Portugal was praised for its efforts. However, targets were missed and forecasts went wrong because “recessionary pressures caused a short fall in revenue.”
You don’t say? But before you do say that well, in that case austerity in Portugal should be reversed, because it is what created these recessionary pressures, and anyway, what goofy self styled economists designed a plan that would indeed lead to recessionary pressures, expecting to achieve anything other than that? Think again.
The failure here was not attributed to anyone or any plan. It was certainly not the troika’s fault! It just sort of happened, as of itself, as it were, and no troika took any responsibility still less any blame for the obvious failure of the imposed policy. No. Instead, the Portuguese politicians were given a pat on the back and told, “Good” now make further cuts and tighten up austerity in order to…. meet your targets? Can they be serious? Won’t this repeat performance lead to even greater recessionary pressures? And further missed targets?
Probably. But the troika has its solution for that. More cuts.
Now, Spain. Which is really a tragic case (well I suppose they all are). Spain’s finances were among the best in Europe. Its sovereign debt lower than that of Germany’s, but as the financial capitalism bubble burst so did Spain’s construction bubble burst wreaking havoc on the economy with an explosion in unemployment and insolvent banks, resulting in growing interest rate spreads.
As these reached and passed the danger mark of 6%, going up to 7% and so on, action had to be taken. Some action any action. Mario Draghi of the ECB declared he would start unlimited bond buying of the sovereign debt of endangered countries, Italy and Spain in the instance. Which was sensible. But then, his arm twisted by those nice people in Germany, one presumes, he added that this scheme would only come into effect after a request by the beleaguered state, and in strict “conditionality”. Which was not at all sensible.
Because now, the state would have to make an official request and would have its bonds purchased “provided” the well worn Memorandum of stringent austerity and loss of fiscal sovereignty were imposed. Which means, that although Spain’s borrowing costs could be contained initially, the very terms of this exercise would lead to prolonged and greater recession, exacerbating the already far too high unemployment rates, which would end up in disaster.
So even though borrowing rates have been contained to a certain extent by Draghi’s mere declaration of intent, if the”conditionality” required by Germany is applied, it will end up as one more self defeating exercise, throwing the Spanish Economy into the same downward spiral and free fall, Greece’s Economy is now in.
And now to the villain of the piece. Greece. The initial Memorandum of Undertanding was absurd and everybody knew it at the time. (Including the IMF). Nevertheless it was set in motion, with the endless bail outs and worsening terms, quarter after quarter. The plan failed completely and utterly. Achieving a higher debt figure both as a ratio of GDP and in actual terms, despite the PSI (the euphemism for the partial default on debt).
The Greek economy is in free fall, the private sector has just about been wiped off the map, and the only prospects in sight are complete collapse and disorderly default.
So what is the troika’s solution? You must carry out the absurd terms of the second Memorandum, that is cuts of nearly 12 billion (in reality closer to 20billion but still), more and worse taxation, and ONLY if you do so, shall we give you your 30 billion tranche to recapitalize the banks, and a two year extension to achieve your targets. Which you must admit is very generous of them in that in their narrative, the plan for Greece has gone all wrong because the Greek governments did not do it all properly like Portugal, and cheated on the terms
Okay. Maybe so. But the question has to be asked, if the Greek government does indeed carry out all the extra cuts and austerity terms demanded by the troika and as planned by the troika, why should there be a two year extension at all? Surely the troika has carefully analysed and designed the plan so that if Greece does do everything demanded, the problem will be solved. In which case any extension will be unnecessary.
No? Well obviously not. And the troika knows it. So why this persistence with these polices of the absurd? Well, you could say it is a matter of principle. States must learn to be disciplined. Only by example will we be able to put the EZ back on track and all that other crap.
Or you could just throw in the towel and accept, OK, you win (that is you conspiracy theorists win) and this is all some dark and devious plan to create a feudal Europe with serfs and slave labour in the south and Feudal Lords in the North.
Or perhaps it is just a case of sheer arrogance and ingrained neo liberal dogma, of the kind the IMF has been designed to perpetuate, that is leading Europe to yet another Continent destroying explosion.